Negotiate Your Compensation: Advice From An Employment Attorney
“The advice of an employment attorney will make things better. Most people think of a lawyer as someone you engage when you’re about to sue someone, or when you’re going to about to get divorced. But having one doesn’t mean that you are going to be litigating. It means that you’re going to be having a contract that’s better for you personally.” Employment attorney Alisa Baker of Silicon Valley firm Levine & Baker co-presented “Stock Grant, Employment, And Severance Agreements” at a recent myStockOptions.com conference.
Flex Your Negotiating Clout
Baker said the more valuable your skills, the more control you have. Negotiating your equity compensation arrangement requires clout. At a public company, this means senior executives: VPs and above. At a private company, however, key employees also include engineers and designers.
Once you reach the pivotal point in your career where several companies want you, there is no ceiling to what you can negotiate. The company’s standard agreements and plan documents no longer matter. Employers will negotiate with you to entice you to join them.
The two main components of the compensation package are cash (base salary and bonus), and equity. Cash compensation can include upfront bonuses to make you whole. For example, you might be losing a bonus payment or equity vesting by leaving your old job.
You can negotiate the dollar value of the equity compensation grant. You also can negotiate the underlying terms:
- Accelerated vesting schedule: if you’re a superstar product designer who doesn’t plan to stay long, you could negotiate a vesting schedule that accelerates on the IPO date, or at a certain point after the IPO. Baker said she’s starting to see companies weight the vesting towards the end. Instead of the typical 25% per year, it’s 10%, 15%, 25%, and then 50% in year 4.
- Early exercise: instead of waiting until the vesting date to exercise options, negotiate the ability to exercise the stock options before vesting. The stock that you own is restricted stock, and you can file an 83(b) election for potentially favorable tax treatment.
- Post-termination exercise period: after you leave a company, you typically have 90 days to exercise stock options. But you can negotiate a longer time period.
Bring experts into the process early
I knew someone who left a job days before his one-year anniversary. His company required him to repay his signing bonus. If he had just waited until the one year mark, he could’ve kept thousands of dollars.
Whether you’re working with a financial planner or an employment attorney, work with an expert before you leave your current job. According to Baker, she reviews both the current job’s documents, and the new job’s documents. She reviews the current job’s documents to understand what the client is leaving on the table:
- Are your options expiring?
- How long do you have to exercise options after you leave the company?
- Are you giving up the next tranche of vesting equity?
She also reviews the potential new job’s documents. The employment agreement is a key document that incorporates all the other documents like stock plan documents, and equity grant agreements. She ensures that all documents are consistent. If her clients negotiate specific changes, she ensures that all of the documents reference these changes. Even if an employment agreement states that it supersedes all other documents, you may still end up in court arguing about which document is right. Baker stated, “If you use a lawyer for nothing else but ensuring that the client is getting what they think they’re actually getting, that would be a huge benefit.”